A bank check for the payment of "five hundred dollars in current
funds" is payable in whatever is current by law as money, and is a
bill of exchange, within the meaning of the Act of March 3, 1575,
c. 137, defining the jurisdiction of the courts of the United
States.
A bank check, presented by a
bona fide endorsee for
payment six months after its date, the funds against which it was
drawn remaining in the hands of the drawee and the drawer having
been in no way injured or prejudiced by the delay in presentment,
is not overdue so as to be subject to equities of the drawer
against a previous holder.
This case comes before this Court on a certificate of division
of opinion between the circuit and district judges holding the
Circuit Court of the United States for the District of Minnesota.
The action was upon two drafts, or bills of exchange (as they are
termed in the record), each for $500, drawn by the First National
Bank of Kasson, in Minnesota, upon the Ninth National Bank, in New
York City, and payable to the order of A. La Due, of which the
following are copies:
"The First National Bank"
"$500 Kasson, Minn., October 15, 1881"
"Pay to the order of Mr. A. La Due five hundred dollars in
current funds."
"No. 18,956 E. E. FAIRCHILD, Cashier"
"To Ninth National Bank, New York City"
"Endorsed: Pay to the order of M. Edison, Esq. A. LA DUE. M.
EDISON."
"First National Bank"
"$500 Kasson, Minn., October 15, 1881"
"Pay to the order of Mr. A. La Due five hundred dollars in
current funds."
"No. 18,754 E. E. FAIRCHILD, Cashier"
"To Ninth National Bank, New York City"
"Endorsed: Pay to the order of M. Edison, Esq. A. LA DUE. M.
EDISON."
Page 123 U. S. 106
The drafts or bills of exchange were immediately after their
execution transferred by endorsement of the payee to one M. Edison
at Kasson, Minnesota. Edison was at the time largely indebted, and
on the following day he absconded from Kasson, carrying the drafts
with him. These drafts he retained in his possession until March
24, 1882, when at Quincy, in Illinois, he sold and endorsed them
for a valuable consideration to the plaintiffs, who had no notice
of any setoff to them. The plaintiffs then forwarded them to New
York City, where, on the 27th of March, they were presented for
payment to the drawee, the Ninth National Bank of New York, and
payment was refused by it. The drafts were then protested for
nonpayment, and notice thereof given to the drawer and endorsers.
In the meantime, the First National Bank of Kasson, the drawer of
the drafts, had become the owner of certain demands against Edison
which, under the statute of Minnesota, could be legally set off
against its liability on the drafts in the hands of Edison and also
in the hands of the plaintiffs unless they were protected against
such setoff as innocent purchasers of the paper before maturity,
and without notice of the setoff. At the time the drafts were drawn
and at the time of their presentation for payment, the Ninth
National Bank of New York had in its hands money of the drawer
sufficient to pay them.
The action was tried by the court without the intervention of a
jury by stipulation of parties, and the facts stated above are
embodied in its findings. Upon these facts the following question
of law arose,
viz., whether the said drafts or bills of
exchange were to be regarded as overdue and dishonored paper at the
time they were presented by the plaintiffs to the drawee for
payment and payment refused, so as to admit the setoff. Upon this
question the judges were divided in opinion, and, upon motion of
plaintiffs, it was certified to this Court for decision. The
circuit judge who presided at the circuit being of opinion that the
question should be answered in the affirmative, ordered judgment
for the defendant. To review this
Page 123 U. S. 107
judgment, upon the certificate of division of opinion, the case
is brought here on writ of error.
Page 123 U. S. 109
MR. JUSTICE FIELD, after stating the case, delivered the opinion
of the Court as follows:
In the record, the instruments upon which the action is brought
are designated as "drafts or bills of exchange." In a general
sense, they may be thus designated, for they are orders of one
party upon another for the payment of money, which is the essential
characteristic of drafts or bills of exchange. They are also
negotiable, and pass by delivery, and are within the description of
instruments of that character in the Act of March 3, 1875,
prescribing the jurisdiction of circuit courts of the United
States. But in strictness they are bank checks. They have all the
particulars in which such instruments differ or may differ from
regular bills of exchange. They are drawn upon a bank having funds
of the drawer for their payment, and they are payable upon demand,
although the time of payment is not designated in them. A bill of
exchange may be so drawn, but it usually states the
Page 123 U. S. 110
time of payment, and days or grace are allowed upon it. There
are no days of grace upon checks.
The instruments here are also drawn in the briefest form
possible in orders for the payment of money, which is the usual
characteristic of checks. A bill of exchange is generally drawn
with more formality, and payment at sight, or at a specified number
of days after date, is requested, and that the amount be charged to
the drawer's account. When intended for transmission to another
state or country, they are usually drawn in duplicate or
triplicate, and designated as first, second, or third of exchange.
A regular bill of exchange, it is true, may be in a form similar to
a bank check, so that it may sometimes be difficult from their form
to distinguish between the two classes of instruments. But when the
instrument is drawn upon a bank or a person engaged in banking
business, and simply directs the payment to a party named of a
specified sum of money which is at the time on deposit with the
drawee, without designating a future day of payment, the instrument
is to be treated as a check, rather than as a bill of exchange, and
the liability of parties thereto is to be determined accordingly.
If the instrument designates a future day for its payment, it is,
according to the weight of authorities, to be deemed a bill of
exchange when, without such designation, it would be treated as a
check.
Bowen v. Newell, 8 N.Y. 190.
The instruments upon which the action is brought being bank
checks, the liability of the parties is determinable by the rules
governing such paper. A check implies a contract on the part of the
drawer that he has funds in the hands of the drawee for its payment
on presentation. If it is dishonored, the drawer is entitled to
notice, but unlike the drawer of a bill of exchange, he is not
discharged from liability for the want of such notice unless he has
sustained damage or is prejudiced in the assertion of his rights by
the omission. In
Merchants' Bank v. State
Bank, 10 Wall. 604, this Court said:
"Bank checks are not inland bills of exchange, but have many of
the properties of such commercial paper, and many of the rules of
the law merchant are alike applicable to both. Each
Page 123 U. S. 111
is for a specific sum payable in money. In both cases, there is
a drawer, a drawee, and a payee. Without acceptance, no action can
be maintained by the holder upon either against the drawee. The
chief points of difference are that a check is always drawn on a
bank or banker. No days of grace are allowed. The drawer is not
discharged by the laches of the holder in presentment for payment
unless he can show that he has sustained some injury by the
default. It is not due until payment is demanded, and the statute
of limitations runs only from that time. It is by its face the
appropriation of so much money of the drawer in the hands of the
drawee to the payment of an admitted liability of the drawer. It is
not necessary that the drawer of a bill should have funds in the
hands of the drawee. A check in such case would be a fraud."
10 Wall.
77 U. S.
647.
Similar language is used by Mr. Justice Story with reference to
the time when checks are to be regarded as due. In stating the
differences in point of law between checks and bills of exchange,
he refers to the rule that a bill of exchange taken after the day
of payment subjects the holder to all the equities attaching to it
in the hands of the party from whom he receives it. "But," he
adds,
"this rule does not apply to a check, for it is not treated as
overdue although it is taken by the holder some days after its date
and it is payable on demand. On the contrary, the holder in such a
case takes it subject to no equities of which he has not at the
time notice, for a check is not treated as overdue merely because
it has not been presented as early as it might be, or as a bill of
exchange is required to be, to charge the drawer or endorser or
transferor. One reason for this seems to be that, strictly
speaking, a check is not due until it is demanded."
Story Promissory Notes ยง 491.
See also Matter of Brown,
2 Story 502, 513.
Accepting these citations as correctly stating the law, the
question presented for our decision is readily answered. The drawer
was in no way injured or prejudiced in his rights by
Page 123 U. S. 112
the delay of Edison to present the checks. The funds against
which they were drawn remained undisturbed in the hands of the
drawee, and therefore the drawer had no cause of complaint. The
instruments in suit were not overdue and dishonored when presented
for payment. Until then, the plaintiffs, as purchasers for a
valuable consideration without notice of any demand against Edison,
in the hands of the drawer, were protected against its setoff.
The certificate of division of opinion presents to us only one
question, and yet, to answer that correctly, we must consider
whether the negotiability of the instruments in suit was affected
by the fact that they were payable "in current funds." Undoubtedly
it is the law that to be negotiable, a bill, promissory note, or
check must be payable in money or whatever is current as such by
the law of the country where the instrument is drawn or payable.
There are numerous cases where a designation of the payment of such
instruments in notes of particular banks or associations, or in
paper not current as money, has been held to destroy their
negotiability.
Irvine v.
Lowry, 14 Pet. 293;
Miller v.
Austen, 13 How. 218,
54 U. S. 228.
But within a few years, commencing with the first issue in this
country of noted declared to have the quality of legal tender, it
has been a common practice of drawers of bills of exchange or
checks or makers of promissory notes to indicate whether the same
are to be paid in gold or silver, or in such notes, and the term
"current funds" has been used to designate any of these, all being
current and declared, by positive enactment, to be legal tender. It
was intended to cover whatever was receivable and current by law as
money, whether in form of notes or coin. Thus construed, we do not
think the negotiability of the paper in question was impaired by
the insertion of those words.
It follows from these views that the question certified to us
must be answered in the negative. The judgment will therefore
be
Reversed and the cause remanded with directions to enter
judgment for the plaintiffs upon the findings, and it is so
ordered.
